Technical Analysis and Trading with Greg Jensen 9-25-2014

Video Transcription

Greg Jensen: Good morning everyone. Welcome to another webinar with Options Animal. Glad to be with you today. Before we get started today into our discussion about technical analysis and how that plays a part in your trading, I want to do just a couple of things. First of all, for those of you that have never taken a webinar before, which I’m sure many of you have, but for those of you who this is the first time, you can interact with me if you would like to in the question bar. If you have questions while we are going, please feel free to type them. I may not be able to get to them until after the presentation, but again, we’ll try to make this as interactive as possible.

The other thing I want to make sure is that you are hearing me okay. Inside of that question bar, just give me a little … maybe let me know where you are from. That would maybe be one of the things you could do in there. Let me know where you are from. Guy from New York City, Rich from Atlanta, Chris from San Diego, William from Houston, Jeff also from Houston, Victor from Puerto Rico, Jack. Okay, we won’t keep on going down. Got a couple guys from Europe. France Chris, welcome; Belgium – Kurt. Anyway, I could spend the rest of the time going down the list of everyone who is here. Thank you for joining me. Sounds like you are hearing me okay.

Also, as always, just a reminder that the content of this presentation is for educational illustrative purposes only. It should not be considered any type of recommendation to buy or sell any security nor any options, derivatives, not should be considered any type of investment advice. Remember that the options and equity markets do involve risk and you should have a firm understanding of the rights, risks and obligations associated with your trading instruments before considering placing any type of trade.

Give you a really quick background as to who I am. I am Options Animal on Twitter if you want to follow. My name is Greg. I’ve been trading for a long time now. I actually started when I was getting my degree back in the early ’90s. Been doing this going on close to 20 years now and it’s been a very educational, profitable venture. The stock market has. The options market specifically. One of the things that I have learned over the years of trading while I have been doing it, is that there is a pattern that you can recognize and that you can take advantage of in the markets. You know, a lot of people see the stock market as the Wall Street casino is often times what it is lovingly referred to by Wall Street haters. Folks there is an enormous amount of opportunity in the stock market. What you have to do is you have to know how to take advantage of it and how to put yourself in a position to survive the emotional stages that come along with the market. Not just survive them, but thrive from them.

There are several different emotions in the market. Oftentimes you see the market in hope phase. We’re hoping for a better future. Then we get the hope phase. We actually get in the market and we start to get into greed phase when the markets are running bullishly. Maybe when the market starts to hit a top, we hit skepticism phase. Maybe when the market starts to roll over, fear starts to come in. Fear then often times turns into panic, which then turns into discouragement where everyone starts dumping out of the market, which then turns back into hope. It is a cycle. When you watch TV for your information about the market, everyone of these emotions are going to be thrown out there. Depending upon what cycle the market is in, CNBC, Bloomberg, Fox Business and all of them that cover the markets will bring out every analyst they can find to pitch greed when that happens to be the phase that the market is in; or pitch skepticism, or pitch fear, or pitch panic. Why do they do that? Because they are there to sell ad space. They are an entertainment company selling commercials. So they have to keep you, the market participant, glued to the TV as much as they possibly can.

Their reasoning is because they have a job and the only way they keep their job is to keep selling commercials to the different brokerage firms and the life insurance companies and whoever else it is that advertises on CNBC.

Now having said that, it is important for you then to be able to say okay, where are we then. Here’s a snap shot of today’s market, where are we in that phase? I’m interested to see where you all feel we’re at. So go ahead and type an answer in there. Do you think we are in greed stage, do you think we are in skepticism stage, do you think we are in fear stage, do you think we are in panic stage, do you think we are in hope stage? Where do you think we are at in this cycle? I’m always interested to get everyone’s opinion.

I’ll just go down and read a hand full of them; greed, greed, skepticism, greed, skepticism, skepticism, greed, greed, greed with fear close. That’s maybe a good assessment Guy. That’s kind of a skepticism phase. Greed, a couple of you already think we are in the fear stage, greed, skepticism. Totally confused. Good answer Jody. That is a good … The artificial bravado stage. Saleem, also a good answer. I agree. I think most of you … I think we’re somewhere in between greed and skepticism is where I think we’re at.

Obviously, you can see for the last year the markets have been very bullish. We’ve had a few little pull backs. You can maybe say that is skepticism right there at the beginning of the year in January. We then bounced and rallied back higher. Then we pulled back in April and bounced and rallied back higher. We pulled back in August and bounced and rallied back higher. It seems like right now, we’re right back at that support level. That longer term uptrend that we’ve been able to identify in the markets. So when I’m looking at positions, I have to realize that we’ve had a very long run with greed and I may be close to skepticism. I’m not in fear yet. I’m definitely not in panic yet because quite honestly, this support level could hold. We could just be at another one of these pull back stages where the market is pulling back right now and getting ready for it’s next leg higher. Or, we could be getting ready to finally break that.

I think what’s important here is a realization that this step you do with the overall markets, it’s very important. Yeah, you may not trade the S&P. You might and if you are trading the S&P, obviously, you have to be able to identify the current trend of the overall market if this is actually the underline that you are trading. But you may say well, I trade Disney and I trade McDonalds and I trade Nike, so I don’t worry about the overall market. Well you should, because 80% of stocks follow the overall trend. Yeah, there are some that can buck the trend, but for the most part, most of the equities out there are going to follow what the overall markets are doing. So it’s important for me to identify where the overall market is.

I would say right now, the overall market is somewhere between … we’ve been in greed and we are getting potentially close to skepticism. This 2000 level for me on the S&P has been pretty important. The fact that we’ve really failed to substantially break through it … I thought maybe we were going to last week with the push higher, but then we pulled right back again on Friday and finished right back around the 2000 level. Then on Monday we pulled back to the 2000 level. This week we’ve been flailing around and today we’re actually moving to the downside again.

Now let me bring up the next concept. First of all I’ve got to be able to look at the overall market. The next concept is that I need to understand that there is more than just having to trade the trend of the market or the trend of an individual stock. Before that, I have to have an understanding of options. Some of you may be relatively new to options. Some of you may have trade options for years. I’m sure those of you that have traded options realize many of these reasons why they are important. Whether that is for leverage, to take advantage of movements to the upside, whether that is for protection, whether that is for cash flow purposes. For me, the most important, is for adjustments. I trade options not because of the leverage side, at least solely. That’s what a lot of people do and that’s where I believe options get their bad name, because people trade them just for leverage. For those of you that have traded them before know, leverage can be a good thing and a bad thing, depending on which side of it you are on.

For me, there is a multitude of reasons why you need to trade options. In fact, as you learn and grow in your understanding of options, you will realize that options are the only tool that I have out there that is a protection for me. I can actually protect the underlying value of my stock that I can generate cash flow off of my stock position that I own. Again, like I said, most importantly I can fix trades that go the wrong way and that’s what the adjustment process is all about. So I can enter the market at any level of those stages. I don’t have to worry about trying to time it perfectly, about watching the market every single day. There are some tools that allow me to help accomplish that. One of those is specifically technical analysis.

Now, technical analysis may be a review for some of you. For some of you, this may be relatively new. So for those of you, this is a little bit of review. Bear with me for a little bit as I kind of set the stage. I’ll show you some of the key things I use in looking at technical analysis. Ultimately, technical analysis is used to determine movement, or the potential movement, where an equity or index may trade in the future. There are a lot of different tools that you are going to use, including up trends, down trends, trading ranges. As a trader, you do need to be able to draw trend lines, like we did with that chart of the S&P. Those trend lines often hold for both support and resistance.

Now a lot of people say this is kooky science and that technical analysis should have no part of investing decisions. There is an excellent book written out there that some of you may have read before. It’s called “A Random Walk Down Wall Street,” by Burton Malkiel. He has written a new version of it in the past couple of years, I believe, called A New Walk or something like that, or an updated Walk to the Walk on Wall Street. I haven’t read his new one, but I did read the original one that he wrote many, many years ago. Burton Malkiel’s belief in technical analysis is that it shouldn’t exist. But the only thing that makes a difference in determining the direction of an equity are fundamentals.

Well that is true from a long term sense. However, in the short term, because there are so many individuals who look at technical analysis, when they are doing their research on their equity, when they are considering the overall trend of the market, when they are considering the overall trend of the industry where that equity resides, they make trading decisions based off of charts. Because of that, you could argue, becomes a self-fulfilling prophecy. People look at a chart, they look at a support level being broken, and they say I should sell now because it’s breaking below a certain level. That pressure of them turning around and selling in the market then causes the stock to accelerate to the downside. So although I, in theory, agree with the fundamental argument out there that technical analysis shouldn’t exist, as a realist and as a trader, I have to recognize that it does. If I realize and can look at some charts, it can actually give me a little bit of an edge.

Now another thing that is important as well is realizing that when these option prices move, particularly if they have some relatively volatile moves, it can actually affect option prices significantly as well due to changes in implied volatility.

Okay, let’s keep going. We’ve got several different ways to look at a chart, or a days movement. First one, one of the things I like to look at is open high/low close bars. Open high/low close simply means that each bar represents a defined period of time. It can be a day, it can be a minute, it can be a week, it can be a month, depending on how long a term you want to look at. I typically look at day charts. The top of the bar represents the high for the day, so open high. The low point, the bottom of the bar, represents the low trade of the day, or again, whatever the period is. The horizontal bar on the right represents where it closed. So in this case, this equity opened here, when as high here, went as low as here, and then closed here, for a bullish move on the day.

Now, typically, when the closing price is greater than the price of the previous bar, the bar is black. When it’s lower, it’s red.

Okay, now the next important step is to be able to look at all of these bars on a chart and to look at daily movement. You can see we have red bars and black bars here. As the equity moves up and down, you have a trend. One of the things when I’m drawing a trend is I’m trying to identify the direction. Now obviously this one is an up trend. The definition of an up trend is a series of higher highs and then also, higher lows. So as we are moving up, notice we went up and then we pulled down, but the low point when the stock began to move to the up side again, notice this low point was higher than the low point back here. Same thing here. This low point was higher than the low point here. When we pulled back again right here, this low point was higher than here. Again, higher lows as well as higher highs. The high point in the short term trends, before you have the intraday oscillations, are higher highs. So, again, this is also called a bullish trend.

Now the down trend, of course, is the exact opposite. Now we have a series of lower lows and lower highs, or a bearish trend. Now you can often times also have a some stocks that will fall in trading ranges, where you have a defined level of resistance and a defined level of support. Now a lot of times, people say stay away from this trade. I will say, this actually creates great opportunity in the options market. Not just to be able to potentially trade the movements up and down inside of the range, but also to be able to create credit spreads on the outsides of this trading range based on levels of support and resistance.

Okay, next concept. Well, okay, trading ranges are great, or trend lines are great to be able to define whether its a trading range or an up trend or a down trend, but at some point, we have trends that break. The trend line that we may have had in place gets violated. Now the violation of a trend line, the valid breaking of a trend line, indicates that that old trend is no longer valid, and that there will be a new trend starting. Now in this case, we went straight from an up trend to a down trend and had very little sideways movement. That’s not always the case. It can be that sometimes you will have a bullish trend that will then break the bullish uptrend, and go sideways for awhile and go into a trading range. That may be the new trend. But then may break and go into a bullish trend. You may never have a true bearish trend inside of some equities. But it’s important to identify that when you have a trend line broken, that you have a new trend and, thus, you should make a change in what your expectations of the equity is going to be. So if you have been trading this bullishly and all of a sudden you get a break right here, well guess what, it’s time to take profits. Now it doesn’t necessarily mean that it’s time to turn on the bearish trend yet. I may want to wait for just a little bit to validate that it is going to be a bearish trend, rather than a break down and a sideways move. Regardless, it means it’s time to take action. Again, if I’ve been bullish and I have that break, it’s time to take profits.

A couple other tools that you can use as well in regards to these trends are longer term averages. Now there are two different ways to look at averages. There are simple moving averages and there are exponential moving averages. A simple moving average is really just that. It’s pretty simple to calculate. It depends on how long you want to look at it and it’s the sum of the closing prices for a certain period of time, divided by that period of time. The most common ones used are the 50, the 100 and the 200 day moving averages. Again, it takes the closing prices for the last 50 days and then divides it by 50, and that’s going to give you a price. Now obviously, this blue line is MA. This is the moving average. Sometimes it says SMA, some charts will actually say just MA. In this case, it just says MA. That means it’s the simple moving average for the 50 day period. Here’s the price point for today. So 3, 28 and 41 is the price point. There it is on the line right there. Then tomorrow, it will add on tomorrow’s closing price and kick off 50 days ago, whatever that is. Somewhere over in here. So the price will change just slightly unless we have a line.

The red line, of course, is going to move a little bit slower because it’s a little bit more data and the green line is going to move even slower and it’s because, again, has more data. Now the reason this is important to note these, again, it’s one of those self-fulfilling prophecies. It’s not just you and I that look at the 50, 100 and 200. There are big institutional traders, big movements of money, that use these averages as their trigger points. Sometimes they won’t quite wait for the 200. Sometimes they’ll do the 190 or the 195 so that they can move a little bit before the rest of crowd does. Regardless, they make trading decisions and when those guys make trading decisions, it moves the market.

There are also exponential moving averages which give a little more weight to recent price action. I’ll show you some of those here in just a little bit. Let me actually talk about oscillators for just a minute as well. Before I go into a couple of specific oscillators I use, you can see that one of them is the MAC-D, I will say this about oscillators. There are some brilliant individuals out there who have created different mathematical tools to try to determine direction of the market. They’ve got some fantastic ones out there. Whether it’s things like percent-R, whether it’s the MAC-D, whether it’s people who look at things like Fibonacci or Bollinger Bands, there are a lot of different types of oscillators out there. I have found, in doing as much research as I have about the different oscillators, that there is not one that is perfect. I believe if it was possible to predict a perfect one, then MIT would have created it and they would have patented it and it would be a money machine. In fact there were a couple of guys that tried that, right? I don’t know how many of you that read the book, When Genius Failed. It’s a story about, I want to say Roger Lowenstein, the author. But the book, When Genius Failed, is about a bunch of mathematical geniuses, Harvard MBA’s, teachers at Harvard Business School, and NYU. Some of the best minds in the world. One of them being Myron Schultz, one of the gentlemen that created the Black Schulz model. Again, these individuals who had these Nobel prizes teamed up with a couple of really hotshot bond traders that had made a lot of money. They dominated the bond market. They had traded a mathematical model that was invincible. Well, at least, they thought it was. It was for a little while until the market stayed irrational longer than they stayed solvent, to point back to John Maynard Keynes, the first coin net phrase. Quite honestly, I know that many of you are probably looking for that magical, mathematical button, or the red or green arrow that says go buy or go sell. I wish it existed, but it doesn’t. It doesn’t mean that you still can’t use some tools, some of these oscillators, to give you an edge and to help you try to time your trades into these markets, but it’s not going to be perfect.

I’ll show you how to fix that here in just a little bit. Coming back to this discussion about oscillators, there are hundreds of them out there. Don’t try to use them all. If you’ve got one that you are using that are different from these that I look at, great stick with it. But don’t bounce from one to another, back and forth. Don’t do some trades based on one and some trades based on another, because you are going to end up making mistakes. Your brain can only handle so much data.

The author of that book, again, I believe is Roger Lowenstein. The book title again is When Genius Failed. It’s the first time in history, at least at the time, when the Federal Reserve had to step in and bail out a financial institution. It was back in 1998. It was the Russian ruble crisis that caused them to crumble. But quite honestly, they had their fingers in everything. They were in WorldCom. They were in all kinds of different types of trades that their model just broke all at the same time. In the long term they were right, but in the short term, it crushed them.

The one specifically that I look at, I look at the moving average convergence/divergence, or the MAC-D. What the MAC-D does, is it essentially measures momentum. Now I’ve got two different lines here. The components inside the MAC-D. I’ve got the black line, which is essentially the difference between two moving averages. I typically will use the defaults inside many of your brokerage firms or standard software, usually looking at the 12 and the 26 day moving average. Again, this is the standard. If you want to change it around just a little bit, absolutely you can.

The next one is a trigger line, or the red line in this case. That is now a moving average, or specifically, an exponential moving average of that black line. So in other words, it’s the moving average of the difference between two moving averages. I know, some of you are like what? Don’t worry about it. The easiest way to read it is you just look for crosses. When I have these cross, it just sets up a signal. Now histogram is way to historically represent the difference as well. Some people like the histogram when it crosses above or below zero as a potential trend indicator. I specifically look for crosses when I’m interpreting the MAC-D. Depending on the direction of the cross, it either generates a bullish signal or a bearish signal. Again, signal line is the red line, black line is the MAC-D line and when I see crosses … notice in this case, the MAC-D had been below the signal line, crossed above and this was a bullish signal. This was also a bullish signal. Hang on, I’ll get to the bearish signals. I know I skipped one there. This was also a bullish signal. So in this 6 month period here, there were 3 different buy signals. There were 4 different sell signals, or bearish signals. One at the very beginning of this chart, one here, one here, and one here.

This is not a perfect indicator, but it is the first one I use. In fact, one of the things I like to use here, or to kind of give you an analogy, as to what I use the MAC-D for, is the MAC-D is my bird dog indicator. Let me explain what a bird dog is for those of you that don’t hunt.

I grew up on a farm in Idaho. One of the things we would do for fun growing up is we would try to hung pheasant. I had mixed success hunt pheasant. Pheasants are a beautiful bird by the way and very fun to hunt. South Dakota is a great place to go for that. You can have mixed success hunting with dogs versus not dogs. It’s almost always better to hunt with a well-trained dog because, obviously, they can smell the bird where you can’t. From a dog’s standpoint, he just smells birds. Let me tell you a little bit about hunting pheasants specifically and one of the reasons why I like it as a renewable sport. Females are protected. You can’t shoot a female bird. Males, on the other hand, can mate with up to 20 to 25 females per season. Honestly, because of that, there is a lot of fighting amongst males in a non-controlled environment. There’s a lot of times that birds will kill each other. You’ve heard of the term cock-fighting. That’s again back here, talking about the birds that the males will fight one another over mating rights. So from a hunting standpoint, you can’t shoot females because they want to protect the population and make sure it has the ability to keep going and you don’t have a shortage of the species. But the males you can shoot. The differentiation is that the males are very colorful birds. They have bright green heads, they’ve got red bands. They’re just pretty colored. Their feathers are very colored, whereas the female is a plain brown looking bird.

So back to the bird dog. The dog, when you are hunting, can only smell bird. It can’t smell male or female. So one of the first things you do when your dog is on a bird, whether it’s a pointer or some type of dog that flushes the bird out, you have to be ready as the hunter when the bird flies up to make a determination is it a hen or is it a rooster. If it’s a rooster and you see the bright colors, you pull the trigger. If it’s a hen, you don’t shoot.

The MAC-D is kind of like that in trading. It will scare up a lot of trades often times, but I don’t want to trade just on my bird dog. I want more validation. I want to make sure it’s the rooster, not just a hen. So I look at another oscillator in combination with it. That is the relative strength index, or the RSI. The way to read the RSI, again, it’s a tool that allows you to measure strength of an equities price action. Again, it’s typically during a number of periods. I use the number 14. The key thing for me here are really 3 numbers. I look at the 30 level, the 50 level and the 70 level. The range is 0 to 100. Very rarely do you see extremes, below 10 or above 90. In fact, very rarely do you see below 30 and above 70. That’s why those are 2 key numbers for me.

Bullish signals are generated when the RSI crosses, again the same way like the MAC-D, either above or below. Again, it’s a cross of that 50 line that generates the signal. So in this case, notice that this move here is a bullish cross over. It had been below, pushed up above 50, that then says go bullish. Bearish is the exact opposite. That’s when I’ve been above and I cross below that generates a bearish signal. Like I said, the 2 other lines of significance are the 30 and the 70. These, to me, are either oversold conditions or overbought conditions. I will say this, just because a stock is overbought and the RSI is above 70 does not mean you should rush and go short that stock. I have seen stocks stay in overbought conditions for years. A good example is Apple between about 2004 and about 2008, it was in an overbought condition almost continually. If you had shorted Apple at that time, you would have lost a lot of money. Netflix is another recent example of a stock that is overbought all the time.

So although those are some indicators that I will look at, I’m not necessarily trading on those. Again, this is another bird dog indicator. When I see RSI down by 30, or RSI up above 70, those are bird dogs. Those are potential trades that aren’t validated yet. I want to see more validation. Again, I’m looking for crossovers at 50, which are the validations, and then I’m looking at some conditions, whether they are overbought or oversold.

Okay, the last one, like I said, when I combine those together with exponential moving averages, and if I get buy signals from my RSI, I get buy signals from my MAC-D, and I get buy signals from my 5 and 20 exponential crossovers, those can be very strong bullish signals. As an example here. Some of you may look at this chart and say, yeah there’s some nice little bottoming, we’ve got some support developing, I see this nice trend that is going on here, I got a crossover here. If I had my MAC-D and RSI on here, you would see that it was validated, I’m going to go put on a bullish trade. Right after you do that, this happens. Right? You feel like this just happened. Not all signals are going to work. That’s what I’m going to call one of the beauties of the market because if signals did work, it would just be a mathematical casino where the house always won. In this case, the house definitely didn’t win.

What do I do then? That’s really where we specialize at Options Animal, is now what. We teach people not just how to build those trades. In fact, let me tell you a little bit about who we are at Options Animal for those of you that don’t know. We are an accredited learning institution. We are essentially a college. In fact, you can take our classes through an online college at Baker University as well, and through Hooter University. We are accredited and our education is broken down into different components. Level 1 is due-diligence. That is, how to read a chart. One of the things I just talked to you about. It is covered in much more depth and much more detail inside of Level 1. How to do fundamental analysis on a company, how to read a companies balance sheet, how to make some decisions based on earnings growth and PEG ratios, and how that can help you make a determination as to where a stock might be going. We’ll then teach you how to define options, how to read an options chart, how Greek’s come into play, what Greeks are important, which ones that are maybe not so important, how to find mispriced options at times. So we dive into that and we teach you options. Level 3 then starts to talk about the different spread trades. We start with credit spreads. Those are some of my favorite trades to do, whether it’s bull puts, iron condors, racial back spreads, bear calls. Those are the types of trades that we will cover in Level 3, specifically credit spreads. We then talk about debit spreads in Level 4, and hedge trades in Level 5.

This is where most of our competition is and our average competitor is going to charge you anywhere from $10,000 to $40,000 to teach you. Some of you may have already paid that before to some of the different companies out there. This is equivalent to our apprentice program. For those of you who are relatively new to the stock market and have never traded options before, this is typically the starting point where you want to start with.

We then take it to the next level and teach you not only trade application and how to actually take all the theory that you learned over here and how to then apply it to your portfolio, how to build your trading plan as a trader. Most importantly, this is where we show you how to fix it. You know the trade that you did the perfect set up on that then goes the wrong way, then what? Do you rely on a stop loss. That’s what most of our competition will tell you to do. What we will teach you how to do instead is adjust. Then of course, get into some advanced stuff.

This is our Trader Pro program. This is what really separates us from all the other educations out there. We’ll teach you not just how to learn the trades and make money when trades go the right way, but how to fix them when they go the wrong way.

Let me give you an example here. This is a flow chart from one of the spread trades that we teach in Level 3 called the bull put. Now the bull put is essentially a short put, or a put that I have sold. Again, that is a synonymous term here. A put that I’ve sold at a higher strike price than the long put that I’ve bought and it’s in the same expiration series. So I’ve bought a put and I’ve sold a put together and it creates a credit spread. Again, we learn this in Level 3. Then what I go through is I monitor it. Then you decide what is the trend. Well if it is bullish, great. That is what I though it was going to do. My primary exit then is to allow the options to expire worthless or close the trade early to capture partial profits. It can be either one of those and I just follow what my primary exit is.

If it’s stagnant, well then I have to ask the question. Is the short put in the money? If it’s not in the money, because again that could happen if I structured the bull put out of the money to begin with, and just got a stagnant trend because the stock went sideways for me, I may still be hitting my primary exit with just a stagnant trend. If it’s gone in the money, this is where our competition usually says well just close the trade, limit your loss and move on to the next trade. What we do instead, well that might be what you should do, but there may be some other options. It could be that I just need to roll the options down and out and I’m still in the same trade because things haven’t changed. My expectation is still bullish, it’s still stagnant and the short term just happened to have a little bit of a glitch. So I’ll just re-position. It may be that I need to reconsider what the trade is and I may need to adjust it to a new trade, like a collar trade. If it’s bearish, again now I have two choices. Ultimately the question is, how bearish is it? If it’s very bearish, I may adjust it to a racial spread by adding some additional long puts to it. Or it may be that I just want to take it to a collar trade. Whatever your expectation is, you have to map it out and you have to be able to say what am I going to do if it’s bullish, what am I going to do if it is stagnant, and what am I going to do if it’s bearish.

We will teach you this process with every single trade out there. Let me give you an example. Here’s a trade I did. Again, here’s my trend line. Every time the S&P had come down and touched this 50 day moving average, it bounced. This time it broke. So to me that is a break of a trend line. Here’s my technical analysis in action, right? This says that the trend is now changing. I got validation the next day. In fact, I got a volume spike saying that there is going to be some momentum. So what did I do? I went and bought puts. I’m bearish. This is in June and I bought August 157 long puts. I spent $4.30 for them. Just slightly out of the money at the time. What happened? This is where I bought my puts by the way. I bought my puts on this day right here. In 3 days, those puts had lost 50% of their value because I bought them right at the bottom. Then the S&P just bounced back up. Most people are relying on a stop loss whether they were quick enough to pull the trigger here at a 20% loss, or maybe they hung in and they are down 50% in 3 days. Regardless, most people are pretty mad right here.

What I did, instead, is I had my plan to find. My adjustment was to convert the long put into a bull put. Ultimately the adjustment ended for me closing the trade on July 11 for an actual 11% return on investment. It wasn’t the home run that I thought I was going to get down here. I was expecting a 25 to 50% return on the trade. But instead of licking my wounds and closing the trade for a loss right here, because I was patient and had my process to find, I still ended up closing the trade for a profit. What that’s done for me, as an individual, I don’t close for losses very often. In fact, one of the ways we teach this process inside of Options Animal education, is we teach people through us, as the instructors in the program, actually sharing our real live trades. We do this on a weekly basis and we call these trades Animal Trades. Every week we share these on our website. Up to date, we have sent out 242 of these trades. Of the 242, 13 of them are currently open. Nineteen of them have closed for loss, 145 of them closed at their primary exit point, and a total of 210 of them were closed profitable. In other words, 65 of the 210 total ended up having to be adjustments.

What a lot of people’s trading record looks like is they will have 145 winners and 84 losers. It’s still 2 times out of 3, which is a pretty good result. Right? As long as you’re winners are bigger than your losers. But what’s the problem often times? Often times, the losers are much bigger than the winners and so although you win 2 times out of 3, that one loser wipes out the profits of the other two. As a trader you wind up not making any money. What this process allows you to do, and allows our students to do and our coaches to do, is make money over the long term. The average duration per trade is 60 days; 59.8. Some of them are closed within a day and some were held on to for 6 months. The average is right under 2 months. The average return per trade, including all the losses, is just under 16% per trade. Now I’ll let you guys do the annualized return in your head, but it’s pretty good.

The win/loss ratio on that, again, is just under 92% of the time we’re closing trades for winners. We’re having to adjust about 3 out of every 10 trades. Now this way of trading is what we teach you, not just from the student’s perspective or the coaches teaching the students, but you will also learn about being part of our trading community. We have a community across the world that is second to none. We have students all over the world from France to Australia to South Africa to Brazil, every state in the country of the United States, Canada. We’re all over the world and we have a community of investors that come together in a regular forum on line to interact with one another and talk about trading ideas. We are the best options school out there. We will teach you how to be successful and part of that is being part of the community and learning this trading methodology.

If you have a question, which I’m sure you do, about who we are and how you can get started in our education, give us a phone call. Our number is 888-297-9165. Unfortunately for those of you overseas, that won’t work. Country code 1 to get to the United States, 801-331-7500. We will offer you some incentive by calling today. If you call within the next 30 minutes, what you will be able to do is you will lock in a discount on your tuition, get a free consultation with one of our reps to be able to determine specifically a package that will fit your educational needs and your trading needs. We’ll also throw in a year of those weekly trades for free. But you need to call in to lock in that discount and get your name on that list. So give us a phone call at 888-297-9165.

Thanks for spending the time with me today folks. It’s been a pleasure. Best of trading and I will look forward to seeing you in another Options Animal webinar. Thanks everybody.